graduate (MBA, University of Chicago) education, and stated that he’d joined Pace as an analyst in the late eighties. And that was it; there wasn’t even a picture. I kept clicking.
A long derelict investment advice site, iLoveYourMoney. com, carried a head shot and a more expansive version of his biography, probably copied in happier times from the Pace-Loyette site. This edition included a laundry list of Danes’s professional affiliations and the accolades he’d received over the years from the industry and the business press: Tech Analyst of the Year, Top Tech Stock Picker, Most Influential Tech Analyst, New Economy Avatar of the Year… it went on and on.
A more current site, RobberBaronsRedux. com, carried the same bio on a page entitled “Top Pimps.” This account, however, was ironically and brutally annotated, and adorned with a large photo of Danes, digitally enhanced with mustache, goatee, glasses, and devil’s horns. Childish, yes, but I laughed.
I clicked away, and the arc of Danes’s career emerged from a fog of data. He’d started as a computer hardware analyst, initially at a big broker-dealer and then at Pace-Loyette, and never distinguished himself from the legion of other analysts tilling the same soil.
That all changed when he was reassigned to cover what was then a relatively new market sector: computer-networking equipment. The first company he analyzed was a little-known manufacturer of network routers called Biscayne Bay Technologies. When he called Biscayne management’s projection of earnings “cautious to the point of wimpy” and predicted that the company’s share price would triple in six months, reaction ranged from incredulity to ridicule. In fact, it took five months and Biscayne’s shares quadrupled. It was the first in a string of home-run calls.
Danes was the right guy in the right place and time. He saw the coming commercialization of the Internet and understood its implications, both for the tech companies that were making it possible and for companies that could sell their goods and services there. And he had the courage of his convictions. He followed Biscayne Bay with similarly astonishing- and accurate- predictions on Ambient Reasoning, Surfside Search, ColdKarma. com, and a half-dozen other companies. By the late nineties, Danes had made his bones many times over. He was The Man in the tech sector, and his word was enough to move share prices. More importantly, it was enough to ensure a successful IPO.
Danes logged a lot of miles in the late nineties on road trip after road trip with Pace-Loyette investment bankers, pitching the prospects of one tech company after another that Pace was about to take public. A few of those firms would grow into real businesses, with actual products and profits, but most would not, and many were no more than cocktail-napkin doodles, tarted up with PowerPoint. But the Danes imprimatur pulled a lot of weight with investors who, if they didn’t always buy his hype, at least understood the buoyant effect it could have on a newly issued stock.
When the new millennium came, the market, like so much else, turned to lead. And though he had predicted the boom, Danes hadn’t foreseen the bust- or maybe he’d believed that his say-so alone would be enough to prevent it. While share prices plummeted, Danes and a handful of other analysts maintained their crazed enthusiasms, until many of their favorites became penny stocks or vanished altogether.
If the collapse of the market was a surprise to Danes, its aftermath was a whack in the head with a two-by- four. The hopeless tangle of quid pro quos and conflicting interests that bound together investment banks, their corporate clients, and the people who ran those corporations were open secrets on Wall Street. But when the particulars of these arrangements- the bartering of favorable stock ratings, personal loans, and shares of hot IPOs for lucrative investment banking engagements- were dragged out for the public-at-large to see, the public-at-large got sorely pissed off. While analysts hadn’t built the trough or gorged themselves at it as deeply as some, they were wide and obvious targets- and so often painted with convenient bull’s-eyes. The brightest one on Danes’s backside was Piedmont Science and its affable chairman, Denton Ainsley.
Piedmont Science was a software company, a supplier of billing systems to medical and dental practices. It was an undistinguished firm in its early years, with a share price that barely supported its NASDAQ listing and no coverage at all from stock analysts. When its president died in his sleep, it seemed as if the company might soon follow suit. Enter Denton Ainsley.
Ainsley was the star of a dozen infomercials that hawked the wares of Dentco, the consumer products company he had founded. Ainsley was lean and handsome, in a silver-haired, leathery sort of way, and his rugged wrangler persona was immensely popular with TV viewers in search of laundry soap and floor wax. They liked his cowboy hat and easy humor and imagined they heard something genuine in his broad Texas twang. No one seemed to question how a man raised in Connecticut had come by such an accent.
Friends on the Piedmont board had opened the door for Ainsley, and his disarming personality- and the sizable chunk of Piedmont shares that he purchased- secured his position as CEO. But Ainsley had more than just charm and money to recommend him; he actually had an idea- a vision of Piedmont’s future.
Ainsley saw that Piedmont’s marketplace was badly fragmented, with many small suppliers and no dominant player. He recognized that the market was ripe for consolidation and that, with the right financing, Piedmont could grow by acquiring its competitors, moving their clients to Piedmont’s products, and squeezing out costs. And there was another, more radical, aspect to his plan. Ainsley understood the growing reach of the Internet and saw in it an opportunity for Piedmont to transform itself- to become a provider not of billing software but of billing services. He saw, in short, an opportunity to get Piedmont out of the software business and into the outsourcing game. This was what had caught Gregory Danes’s eye.
Three months after Ainsley’s installation as CEO, Danes became the first analyst to cover Piedmont. He was unequivocal in his support for the company’s strategies and beyond bullish on its future value. His declarations attracted more research coverage to Piedmont, and more investors, and the company’s shares jumped.
None of this was lost on Denton Ainsley, who proceeded to cultivate close ties with the analyst and his firm. He invited Danes to speak at several of Piedmont’s lavish corporate retreats, solicited his views on takeover targets, and made him guest of honor at one of his celebrity-laden charity pig roasts. As for Pace-Loyette, Ainsley tapped the firm as Piedmont’s investment banker on all acquisitions and named it lead underwriter on the company’s secondary stock offering. Pace also became Ainsley’s personal banker, extending him hefty loans, collateralized by hefty chunks of ever-more-valuable Piedmont stock.
For a while, while the market climbed, all was well. Piedmont’s growth strategy proceeded apace, subscriptions to its new outsourcing service sold faster than planned, and the company’s stock became a must-have for anyone who wanted to invest in the Internet. Pace-Loyette collected its fat banking fees, Danes’s reputation shone ever brighter- as did his outlook on Piedmont shares- and Denton Ainsley undertook elaborate renovations to his newly purchased Napa Valley chA?teau. And no one paid much heed to talk of accounting irregularities and falsified sales figures at Ainsley’s old company, Dentco, or to questions about Piedmont’s subscriber numbers, or to complaints that its software just plain did not work.
When people did take notice, the unraveling was fast and violent. The SEC announced its inquiry into Dentco one Monday early in the new millennium; the following day came its notice of an inquiry into Piedmont. Wednesday saw a class action suit by a group of Piedmont customers; on Thursday the Justice Department declared its interest in interviewing Piedmont board members. On Friday, the first shareholder lawsuit was filed.
On Saturday, Denton Ainsley’s bright Italian car was fished from a pond on his Napa estate, and Ainsley’s body was fished from the car. Suicide by Ferrari was the unofficial finding of one cop on the scenean opinion bolstered the next day, when the coroner established Ainsley’s astonishing blood-alcohol levels.
The forensic accountants took a bit longer on the autopsy of Piedmont Science, but when they were through their report revealed massive fraud, hidden debt, and systematic looting of the company’s coffers- all orchestrated from the very top. By which time the company had largely decomposed.
Piedmont had little in the way of assets, and its executives and directors relatively shallow pockets, and it wasn’t long before irate customers, investors, and regulators turned their torches and pitchforks on Piedmont’s bankers. At the time, their claims were novel: Pace-Loyette and Gregory Danes were either fools or criminals, negligent incompetents if they were unaware of Piedmont’s true financial condition, despite extensive dealings with the company, or co-conspirators in Ainsley’s fraud if they knew but didn’t tell. And either way, they were horribly conflicted: Pace’s interest in keeping Piedmont as a client, and in keeping Piedmont’s shares inflated, led it- and Danes- to distort research reports and to mislead investors.
Though they made for fun reading, the allegations were difficult to prove. There was no trail of memos or smirking e-mail to indicate that anyone at Pace-Loyette had known of the fraud, or to suggest that Danes had not believed his own research reports. And there was the fact, besides, that Pace had lost a large pile of dough on its
